Posts filed under ‘Political’

I am going to take a little editorial privilege this morning and channel my inner Paul Harvey.

Among the many strange twists and turns that have taken place over the past two weeks, it is easy to overlook the ascendency of New York City as the center of the political universe, but that is exactly what has taken place.

Consider this: in the aftermath of a landslide Republican victory, New York City, which to many social conservatives deserves a place alongside Sodom and Gomorrah, and to many Trumpicans personifies elitist disregard for the little guy, is now home base of the most powerful politicians in America. Think of it, Donald Trump from Queens is going to be the President, Chuck Schumer from Brooklyn is now the defacto leader of the opposition as the leader of the Senate democrats, former NYC Mayor Rudolph Giuliani is rumored to be Trump’s choice as our Nation’s Secretary of State, and transplanted Brooklynite Bernie Sanders is the nation’s leading Socialist turned Democrat. How’s that for New York values, Ted Cruz?

You all know about Donald Trump’s rise to power, but the rise of Senator Schumer, while much more traditional, has some very intriguing twists and turns of its own that offer important clues as to how he will lead as Senate Minority Leader.

He started his political career in 1974 as a 23 year-old Assemblyman from Brooklyn with a knack for getting media attention and driving policy. As Newsday pointed out in this 2015 profile, there aren’t many freshmen who can get Assemblymen to agree on anything, but as a freshman he was able to get 39 of them to attend a press conference protesting education cuts. He successfully ran for a congressional seat in 1980. In Congress, he became known not only for his intelligence and attention to district concerns, but for his eagerness for the spotlight. Former Senate Majority Leader Bob Dole once said that the most dangerous place in Washington is the space between Chuck Schumer and a TV camera. In 1998, Schumer knocked off Al D’Amato, no easy task considering that D’Amato himself was a master political operative and also a long serving senator who always put state interests first.

The story gets especially interesting when, in 2000, Hillary Clinton successfully ran for NY’s open US Senate seat. There were more and more press reports speculating that Schumer was frustrated that even thought that he was the senior Senator from New York, next to Clinton his role was diminished.

This speculation came to a head when Schumer pulled off one of the great political power plays in NY history. Fresh off an easy re-election, he openly flirted with the idea of running for Governor. As reported by the New York Times “Top Democrats vigorously campaigned to keep him in Washington, promising him a spot on the powerful Finance Committee and persuading him to lead the Democratic Senatorial Campaign Committee through the midterm elections of 2006.”

This was the key moment in the Rise of Chuck. Nothing gets you friends quicker in politics than helping get someone elected. Plus, he had a close working relationship with Senator Reid who endorsed him as his chosen successor when he announced he was stepping down.

Through it all, the Senator has never lost his enthusiasm for constituent work or his love of the spotlight. His Sunday press conferences are a staple of local news and when my uncle, who had met the Senator while working on neighborhood crime fighting initiatives, retired from the NYPD, the Senator posted a tribute in the Congressional Record. Touches like this still matter. It’s why one former Republican I used to work with called him the best politician in New York.

Why does all this matter? For one thing if I had to come up with a political Moniker for the Senator it would be: “It’s the middle class stupid!” which makes him a natural ally of credit unions as evidenced by his support for MBL reform.

Secondly, no thanks to political or demographic trends, New York City will now be hosting its greatest fight since the Thriller in Manilla. Trump knows how to communicate and doesn’t back down from a fight, neither does Schumer, this should be a darn good show.

The next time someone tells you the more things change, the more they stay the same, remind them about the election of 2016. No one, including Donald Trump, knows precisely what all this means for credit unions, but there are some very intriguing possibilities.

Mandate relief is a real possibility. One of the most conservative Congresses in history will now have a Republican president. The Democrats only picked up one Senate seat and although the House majority was trimmed, the flame thrower faction will see last night’s results, with some justification, as vindication of their scorched earth approach to governing. Without the threat of a veto, legislation to scale back the CFPB and provide mandate relief to smaller financial institutions may grow legs.

CFPB will be in the cross hairs. When the United States Court of Appeals for the District of Columbia ruled that the CFPB’s director was an at-will servant of the President, credit unions were disappointed that the Court didn’t go further in invalidating the whole enterprise. Now that case has some real teeth. With anti-regulation Trump coming to town, the Bureau is effectively in limbo. Who do you thing his Director will be?

What regulators give, they can take away. Expect every single controversial regulation and guidance, ranging from the exempt employee threshold to the accommodation of transgender employees, to get a second look.

Some New Old Faces Go to Washington

By the way, the newly emboldened majority in the House will include former NYS Assembly Republican Minority Leader John Faso (R) and Assemblywoman Caudia Tenney. Former Nassau County Executive Tom Suozzi (D) is back in the game, claiming NY’s third Congressional district. State Senator Adriano Espaillat easily won the seat vacated by the retiring Charlie Rangel.

Senate Republicans Holding On

On the state level, the results are almost as remarkable in their own way but there are still a couple of races in the Senate that are too close to call. As of right now it appears that reports of the demise of a Republican Senate have been greatly exaggerated. Here is the breakdown as reported by the Times Union this morning

Last night’s “results” left the Senate breakdown: 32 Republicans, 23 mainline Democrats, seven members of the Independent Democratic Conference, and one Simcah Felder (a Democrat who conferences with the Republicans).

If everything holds, with Felder, the GOP would have an outright majority of 33 members. “

The Democrats hold a slight lead in a Long Island race that is headed for a recount. The key point is that, even though the IDC has grown, it has done so at the expense of the Senate Democrat caucus. Furthermore, it’s possible that the Republicans will be in the majority without the IDC’s help.

Last week I highlighted financial issues in the Republican platform and with the Democrats set to kick off their reality TV show called the National Convention, today here are some of the intriguing tidbits in their platform.

If you just arrived from another planet, you would think that post offices, not credit unions or community banks, are the key counterweight to a banking industry run amok. The financial service offerings of post offices were mentioned in two separate parts of the party’s platform. In one section the Democrats want to help save the Post Office by, among other things, allowing them to offer basic financial services such as check cashing.

In another section dedicated to reigning in Wall Street and fixing our financial system, the platform explains that “Democrats believe that we need to give Americans affordable banking options, including by empowering the United States Postal Service to facilitate the delivery of basic banking services.”

Now, there are some who believe that expanding the authority of Post Offices is a win-win for the American taxpayer. They argue that since all communities have a post office, by allowing the service to provide banking services, perhaps including small dollar alternatives to pay-day loans, all Americans would be assured access. They also argue that the Postal Service has to be preserved even as it is made increasingly anachronistic by technology. Either way, it looks as if credit unions will be competing for political oxygen not only against banks, but the mailman.

Other highlights of the Democratic platform include: calling for an updated version of Glass-Steagall and “breaking up” too big to fail financial institutions that pose a systemic risk to our economy. Democrats implicitly called for the preservation of an active public role in housing. For instance, they support preservation of the 30 year fixed mortgage, “modernizing credit scoring, expanding access to housing counseling, defending and strengthening the Fair Housing Act and ensuring that regulators have a clear direction” and authority to enforce rules effectively.

Finally, while Republicans support major reform of the CFPB, Democrats view defending its current structure as an important means of defending the housing rights of Americans in general and minority communities in particular.

High Priced Mortgage Loan Appraisal Exemption Clarified

Pursuant to the Dodd-Frank Act, special appraisal requirements are mandated for higher-priced mortgage loans. Starting in January of 2014, the banking agencies, including the NCUA, exempted mortgage loans of $25,000 or less from these requirements. Regulations have been introduced to clarify the method by which this threshold is adjusted for inflation.

Party platforms are little more than vehicles to pander to a party’s most ardent supporters and provide little guidance as to what a presidential candidates would do if elected. This is particularly true in a year in which the Republican party has been Trumped. Nevertheless, they provide good guideposts of where our politics is headed. Here is a look at the Republican’s 2016 platform. I’ll do the same for the Democrats next week. A quick note to the Republicans: You have a lot of credit union supporters. Joint references to community banks AND credit unions would be nice to see.

The proposal that has gotten the most attention in the financial press this morning is the Republican call, apparently at Trump’s urging, to reinstate the Glass-Steagall Act of 1933 which put up a firewall between investment and consumer banking until it was repealed in 1999 at the urging of the Clinton administration. It means that both the Trump Wing of the Republican Party-whatever that is-and the Sandernista’s on the Left of the Democrats both firmly believe that not enough has been done to reign in banking excesses in the aftermath of the Great Recession. They are correct.

This is shrewd politics and good policy. Its good politics because it gives Trump a wedge issue with which to further alienate Sanders supporters from Hilary Clinton. As Trump’s campaign manager explained in a press conference yesterday “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all of the Wall Street money going to her.”

Good Policy? One of the biggest reactions I get from this blog is when I point out that any true free market conservative should be in favor of breaking up the big banks. If a bank is too big to fail than it is too big. The guarantee of a government bailout is an indirect subsidy to the largest banks that isn’t extended to community banks or credit unions.

Among the other highlights:

–It calls for scaling back the federal role in the housing market coupled with “clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices.” Interestingly, it doesn’t call for the elimination of Fannie and Freddie but says that the “utility” of both should be “reconsidered” as part of housing reform.

–The platform complains that over the last century too much power has been handed to bureaucrats. It calls on Congress “to begin reclaiming its constitutional powers from the bureaucratic state by requiring that major new federal regulations be approved by Congress before they can take effect.”

–Not surprisingly, it colorfully describes the Dodd-Frank Act as the “ the Democrats’ legislative Godzilla,” that “ is crushing small and community banks and other lenders.”

I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.

The legislation is a federal attempt to address elder financial abuse. Most states have already mandated reporting requirements in this area. New York’s DFS has issued a guidance on the issue. NY law protects any person who reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency based on a good faith belief that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney). This protection isn’t quite as expansive as what would be protected under the House bill.

I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected criminal activity involving financial exploitation; and the issues raised are best handled by family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.

The bill, which passed with overwhelming support on Tuesday, would authorize supervisors, compliance and BSA officers to report possible financial exploitation of a person 65 years of age or older to law enforcement and government agencies. The institutions and individuals making these reports would get legal immunity for doing so if they train employees on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.

There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer and BSA officers to report suspected elder abuse but enables any employee to spot it. One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse the ultimate call on reporting should be made by senior personnel.

Second it places no affirmative obligation on financial institutions to report suspected abuse. it simply protects them if they choose to do so provided they have appropriate training.

Finally, it provides a baseline of immunity for institutions that report suspected abuse.

A Most interesting Jobs Report

Any minute now we should be getting the jobs report for June. It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing, the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.

There is a lot of Red-Meat election year nonsense in The Financial CHOICE Act unveiled by Representative Hensarling on Tuesday; This is, after all, an election year, and the proposal has as much to do with laying out a contrasting vision of financial regulation than it does about getting anything done before this Congressional session is over.

That being said, one of the proposals that intrigues me the most is to “Repeal the so-called Chevron deference doctrine.” This may sound esoteric compared to proposals to neuter the CFPB director, extend the exam cycle and allow banks to opt out of Basel III capital requirements, but it could put the brakes on a regulatory process that many of us believe has gone haywire. Here’s why.

An agency’s power to regulate comes from a legislative Act. For example, the Durbin Amendment was a law from Congress directing the Federal Reserve to cap debit card interchange fees. And Congress empowered the CFPB to regulate consumer protection laws in the Dodd frank Act. That’s why a regulated entity like a credit union can sue to block a promulgated regulation which goes beyond a regulator’s authority and why the NCUA got an opinion letter on its ability to impose risk based capital requirements on Well Capitalized credit unions.

Now this may come as a shock but much legislation is vaguely written. So what is a court to do when it is faced with a challenge to a regulation implementing a statute that is capable of more than one interpretation? This is what the Supreme Court told the Courts to do: “ First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43, (1984).

Critics of this framework argue that it has evolved into a rule of law that gives regulators too much flexibility to make de facto laws called regulations. Many statutes are capable of being interpreted in more than one way and, when they are, the Courts must generally defer to an agency’s interpretation. Combine this power with the wide-ranging power of regulators to issue Guidance interpreting their regulations and you end up with a system In which the Executive Branch can impose mandates without getting laws passed and in which the Director of the CFPB has more power than any elected official besides the President.

To all of you out there who think I am shilling for The Man I will tell you what I told A WSJ reporter the other day: How much executive power do supporters of government by regulation want to hand to a President Trump?

Doing away with Chevron deference would return the power to interpret statues to the place where it ultimately belongs under the constitution: The courts. It would also encourage better drafting by Congress. Parts of Dodd Frank read like a regulatory to-do list. Perhaps if Congress knew that their work was going to be reviewed by judges without deference to the views of a regulator with whom they have dealt with for years legislation would actually read like legislation.

One more thing. As a judicially created doctrine the Supreme Court could eliminate Chevron in a future case. Before the Death of Justice Scalia I would have said it was headed in that direction. For those who want the Court to reexamine the framework it uses to evaluate regulations this makes the views of the next justice all the more important.

There are two reasons governments nationalize corporations: (1) The company is losing money and it is considered too important to fail; or (2) it is making lots of money and the government wants to get its hands on it. Fannie and Freddie have had such a roller coaster ride since 2008 that they have been victimized by both impulses. Since credit unions have a vital stake in the future of the secondary market, they shouldn’t shy away from voicing their opinion.

Yesterday, Freddie Mac announced a $200 million loss for the first quarter. It attributed the loss to those blasted GAAP accounting rules. (If only companies could come up with their own financial statements without accountants getting in the way, the economy would be so much stronger.) Specifically they explained that interest rate volatility, combined with the way they book their derivatives, made things look worse than they actually are. Yada, yada, yada. http://www.freddiemac.com/investors/er/pdf/2016er-1q16_release.pdf

Freddie’s announcement raises questions about the continued wisdom of an aspect of US housing policy, which has thus far received too little attention. In September, 2008 the Government handed the GSEs a lifeline and $187 million was drawn from the treasury. Congress also empowered the FHFA to act as conservator or receiver of Fannie and Freddie, and to take over the rights of any stockholder, officer, or director. The Government originally took preferred stock; but, starting in 2012, the Government started sweeping all GSE profits exceeding capital buffers. Considering that the GSEs have made lots of money in recent years, this was a good deal for the Government. In fact, it was such a good deal that the Treasury is being sued by private stockholders claiming that the Government is taking money that belongs to them. Perry Capital LLC v. Lew, 70 F. Supp. 3d 208, 217-18 (D.D.C. 2014).

But, does this policy make sense if the GSEs are losing money? “This development reinforces my concern over current federal policy regarding the GSEs, who have more than fully repaid the funds they borrowed during the 2008 financial crisis,” said Rep. Michael Capuano, D-Mass. He is a member of the House Financial Services Committee, who has emerged as a level headed voice of reason on housing policy and was quoted in this morning’s American banker as saying. “Despite this, they must continue sweeping all their profits to the Treasury Department. The policy needlessly prevents them from building a capital reserve, which leaves taxpayers vulnerable in the event of a future crisis.” http://www.americanbanker.com/news/law-regulation/freddies-quarterly-loss-renews-cries-to-end-profit-sweep-1080807-1.html